On June 4, the Canadian Mortgage and Housing Corporation (CMHC) announced that they will be implementing changes to the eligibility for mortgage insurance in response the global COVID-19 pandemic. These changes have been put in place to provide housing market stability as CMHC predicts a price drop in average housing prices in the upcoming year.
Mortgage deferrals have been implemented at the start of the pandemic & has resulted in higher mortgage debt, and with CMHC’s forecast of declining house prices plus an increase of unemployment, it will become a concern for Canada’s long term financial stability.
So, what exactly does all this mean for home buyers in Canada?
1. New Minimum Credit Score
The new rules will set a higher credit score for buyers to qualify for CMHC insurance. Currently, minimum credit score is 600. As of July 1st minimum credit score will be 680.
2. No Borrowed Down Payments
Homebuyers will be required to use their own (not borrowed) funds for their down payment. Source of down payment funds will no longer be able to come from a source that will increase the borrower indebtedness. So, lines of credit are not an option.
3. Lowered Amount of Debt a Mortgage can Carry
Debt service ratios currently are 39/44. As of July 1st they will be 35/42. This will decrease a high ratio buyers borrowing power by 9-13%.
Contact us directly today if you have any inquiries or questions – we’d love to hear from you!